Air Canada (TSX:AC) stock has been in rally mode this year, with shares up more than 33% year to date and over 44% over the past year. Undoubtedly, it’s been a long time coming for such a hot run. At writing, the stock is down around 50% from its pre-pandemic high.
As COVID lockdowns become a distant memory, I think AC stock can return to pre-pandemic heights within the next five years, even with a recession thrown into the equation. Canadian travel demand has been remarkably robust, even as consumers become more selective amid weakening macro conditions.
National Bank’s analyst Cameron Doerkson thinks the solid summer travel season could help power shares of AC to $32 per share. That’s a decent gain of just over 25% from current levels that would put the stock at levels not seen since early 2020.
It’s not just a good summer travel season that could help Air Canada stock continue flying higher from here. The company has done a pretty decent job of managing cost pressures (labour and fuel) over the years. Undoubtedly, it seems like Air Canada has been flying with the wind at its head for quite a while now. As cost pressures normalize, while demand comes back online in full force, I think Air Canada is setting the stage for an impressive ascent.
The balance sheet is poised to improve over the next several years. And once recession fear turns into optimism about the next expansion, it may be difficult to halt Air Canada’s next boom. For now, I expect Air Canada will continue doing its best to manage costs. Indeed, the airline business is known for its hefty capital expenditures. Given the circumstances, I’d argue management deserves a lot of credit for their efforts through what one can only describe as a turbulent past couple of years.
Air Canada stock: A turbulent ride worth punching your ticket to if you’re young and brave
If things go right for a change, I think Doerkson’s $32 price target is realistic. Young investors seeking a decent risk/reward tradeoff may wish to keep shares of AC atop their radars, as momentum looks to build in the second half. Undoubtedly, the 2.34 beta implies the stock will be an incredibly turbulent ride.
The stock has endured some very sharp corrections over the past two years. I’d argue there’s a good chance the current rally could end with a steep plunge, especially if a recession finally materializes.
Though I still think AC stock is a great value at these levels, I’d much rather wait for a sizeable pullback before initiating a sizeable position. At the end of the day, Air Canada stock is a buy for the next two to three years. In the near term, it’s hard to tell where the wild mover will end up next. Arguably, the stock is overdue for a correction, possibly at the hands of broader market volatility.
The bottom line for Air Canada
Air Canada stock finally appears to be ready to march higher. Recession or not, travel demand may be in a spot to keep revenue growth going strong from here.
